Blockchain, NFT, Web3, and cryptocurrency are notable buzzwords today. However, marketing executives are still working to understand the key value drivers and investment areas around customer engagement and loyalty.

NFTs in Web3 are like “forms” in Web3: they unlock value. On Web3, brands have migrated from making money from collectibles to new ways of engaging customers. There is a variety of implementations by sector, industry, and brand, for example, access to communities, broader redemption, exclusive content, new experiences, cash monetization, etc. There are also many loyalty programs in many apps, which are difficult to track or transfer. Brands often see sub-optimization when it comes to loyalty program returns due to inactive customers and expired points.

A migration from closed (Web2) to open (Web3) systems is underway to address this loss of value. In other words, customers can be locked into one brand on Web2, but find their redeemable loyalty to another brand on Web3 through tokenization. This is how Web3 can potentially help unlock the value that remains when companies build customer-centric programs on Web2. As the co-founder of a company working to bring value from Web3 to Web2 companies, I want to explore the mechanics of customer loyalty tokenization and potential barriers to adoption.

Loyalty programs on Web3

A familiar concept in the Web2 world are loyalty programs for hotels, airlines, stores, etc. Brands use them as tools to encourage people to sponsor their products or services through points or miles. These points are mortgaged to the consumer, but they do not own or control the terms for their use. Although these assets are tied to the consumer’s email or web identity, they cannot be settled for cash, transferred, bartered, or redeemed against brand policy, eg, blackout dates, redemption costs, etc.

Web3 has the potential to give complete control of these loyalty points or miles to the user. For example, a consumer can accumulate loyalty points or currency from various hotels, airlines, and stores in one tokenized asset. These assets can be sold, traded, bartered, or traded for a multitude of things in a market. These tokens can be fungible or even proprietary NFTs (non-fungible tokens).

The tokens can also be programmed via smart contracts to deliver a small percentage of the sale to the brand itself, creating a new revenue stream. Offers from brands could be sent directly to the consumer’s wallet, leading to greater stickiness and loyalty. Today, many of these loyalty programs destroy value for brands and consumers through a “use it or lose it” scheme that could be monetized by generating value for both parties. Once Web2 and Web3 work together, there is the potential to unlock a lot of value.

Many brands like Gucci, Nike, Adidas, etc., have experimented with these concepts. For example, Nike generated $185 million through NFT sales in the last quarter and Adidas generated $22 million in one afternoon, both signs of a potentially exponential revenue model.

The way to follow

Several companies are trying a variety of approaches to integrate tokens into their existing products or services while exploring new business models and revenue streams. These companies will drive mass adoption of Web3, integrated into Web2 value chains as an extension. Consumer adoption will happen for real value and turn away from adopters trading tokens with a speculative eye today. Ownership, interoperability and portability will be at the core of loyalty programs powered by Web3. These tokens act as digital passports that unlock value through experiences inside or outside of the loyalty program.

The value unlocked by these tokens can also be woven into each loyalty program’s revenue structures by identifying milestones that unlock benefits across multiple programs using a single identity-linked wallet.

Skeptics wonder if brands are simply putting a Web3 wrapper on existing paradigms and creating new walled gardens of value instead of embracing the Web3 ethos, which posits that users own their data, not corporations. They are also looking for answers as to why Web3 methods are better than Web2. If we’re moving from closed to open ecosystems, brands like Starbucks still don’t allow their NFTs to be redeemed at Peet’s or other competing outlets. Some airlines and hotels have done a better job of partnering with others in redeeming loyalty points, but find themselves in unfair trades or onerous redemption terms.

Even beyond skepticism, a wallet can help eliminate the friction caused between the brand and the intermediary platform by establishing a direct relationship between them. Brands can repurpose those costs to reward consumers for their time, attention and engagement in meaningful ways, driving new emotional attachment to enhance loyalty.

concluding thoughts

We are still in the early days of asset tokenization as businesses and consumers process the exchange of value on peer-to-peer networks. The vast majority of tokens still have no real value at scale and many chains are struggling to fit their adoption vectors into the product marketplace. I believe the value will be created from Web3 features integrated into existing Web2 businesses that people use today, rather than trying to rip and replace Web2 with Web3 overnight. Liquidity tokenization on the blockchain is likely to unlock several layers of innovation and creative cumulative GDP. We are at version 1.0 of tokenization, and with advances in scaling technology, interoperability, regulation, and security, many asset classes and forms of liquidity will be created.